What Happened:
Shares of furniture company Lovesac (NASDAQ:LOVE) fell 17.6% in the pre-market session after the company reported fourth-quarter results, with revenue and EPS both falling below Wall Street's expectations. Guidance wasn't much better. Next quarter's revenue and EPS guidance, as well as the full year outlook for revenue and EPS, missed expectations. In the release, management mentioned that they were anticipating an "eventual category rebound". Overall, this was a bad quarter for Lovesac.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Lovesac? Access our full analysis report here, it's free.
What is the market telling us:
Lovesac's shares are very volatile and over the last year have had 31 moves greater than 5%. But moves this big are very rare even for Lovesac and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about a day ago, when the company dropped 5.8% as major indices pulled back and yields soared after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of March 2024 that came in slightly hotter than expected at 3.5% year on year (versus analysts expectations for 3.4%). According to the report, shelter and gasoline prices contributed more than half of the monthly increase in the index.
The inflation print, while only slightly above expectations, is adding to fears that the Fed could delay rate cut plans in 2024. Following the inflation report, consensus estimate was for two rate cuts in 2024 (down from the previous consensus for three rate cuts).
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Lovesac is down 23.6% since the beginning of the year, and at $20.11 per share it is trading 32.7% below its 52-week high of $29.87 from April 2023. Investors who bought $1,000 worth of Lovesac's shares 5 years ago would now be looking at an investment worth $671.00.
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